One in three consumers covering debt by borrowing

January 30, 2015

Lucy_2 (Custom)By Lucy Palmer-Richeson.

Over a third of consumers will be borrowing money in 2015 to cover existing debt, according to a report from mutual sector insurer CUNA Mutual.

The “Financial Fragility and Confidence” report released this week found that consumers are more financially vulnerable now than they were in 2012. The report is a result of CUNA’s three-year assessment of the financial security of UK households.

The report found that in 2014 only 8% of the population safeguarded their loans with some form of income protection or repayment plan, compared to 17% in 2012. It also found that 41% of borrowers would be unable to repay their debts if they lost their jobs.

CUNA Mutual CEO, Paul Walsh, said: “Although many people across Britain have suffered painful financial lessons from the insecurity that came with the economic recession, it seems many of us have not acted on these and have become even more vulnerable to future undesirable monetary shocks.

“This is worrying, not only because 92% of consumers have no safeguards in place to protect their loans should they encounter a temporary or permanent loss in their income, but because we are facing a ‘calm before the storm’ period in the UK economy,” he said.

“When interest rates increase from their current record lows, which they will, this will increase the cost of credit and could make currently affordable repayments crippling.

“There are reliable and affordable solutions available that secure loan repayments, such as our Loan Debt Waiver, and smart Building Societies and Credit Unions are using them now to safeguard their borrowers for the future.

“Wise and prudent consumers should use this period to practically safeguard their financial future and avoid the risk of drowning in debts if and when they experience a break or loss in their income.”

Joanna Elson, chief executive of the Money Advice Trust, said: “While the return of consumer confidence is undoubtedly a good thing, we must take care to ensure that households do not fall into a false sense of security.  This issue goes beyond the area of income protection to also include the fundamentals of putting a budget in place, planning to build up a cushion of precautionary savings and resisting the temptation to overstretch.

“It is crucial that consumers do not rush into taking out credit in 2015 without thinking hard about these underlying fundamentals of their personal finances.”

If you are struggling with personal debt, speak to one of our trained advisors today on 0800 072 6623.